Last week we talked about Anthony Bozza’s short in Opko Health Inc. (NYSE:OPK), which has stirred up the interest of fellow investors as well. According to the third quarter letter which was seen by ValueWalk, Bozza’s Lakewood has a large number of short positions in equities, an uncommon trait in the bull markets these days.
Lakewood suffered in Q3
The hedge fund suffered a -16% decline in its short portfolio whereas the longs generated a +7% return. Overall Lakewood was down 0.5% in the third quarter. The fund has significant short exposure – long equity exposure was 86.6% whereas short exposure was 43% at the end of third quarter. Bozza noted in the missive,
“The disconnect between the market price and fundamental value in our short book is by far the widest we have seen. Many of our shorts have had operational struggles or experienced significant adverse events as we had predicted, but many of those stocks have increased in value nonetheless.”
One of the major losers for the fund has been its short position in Tesla Motors Inc (NASDAQ:TSLA), which contributed a 0.5% loss to the fund in Q3. Bozza calls Tesla one of his worst performing shorts of all time but he had all plans to stick to it till the end of last quarter. Bozza compared the business of Tesla to Bayerische Motoren Werke AG (ETR:BMW), Lakewood is long BMW, and said despite the fact that Tesla Motors Inc (NASDAQ:TSLA) generates far lower sales, its business is valued at an outsized level.
Bozza said that there were so many ways in which BMW was a bigger company than Tesla – BMW manufactures 100x more cars than Tesla, the German company has invested 50x of what Tesla has to build its business – yet BMW is valued only 3x more than Tesla. Lakewood said that this won’t be the only time when one of Tesla’s Model S catches fire. And rightly so, there have been more incidents of fires erupting in brand new cars made by the electric automaker.
High short interest in Tesla
Deutsche Bank’s Prime Finance report for November notes that short interest in Tesla Motors Inc (NASDAQ:TSLA) went up when the company was caught in a circle of bad news. Investors’ interest in shorting Tesla rocketed; DB notes that borrow rates jumped to 99%. Short interest in Tesla was at 26 million shares, and steadily edging closer to breaking the record of 35 million shares it achieved at the beginning of this year. Shorts in 26 million shares amounts to 21% of Tesla’s outstanding shares, and the oversized short interest is partly the reason why the stock has been so volatile all year.
While Tesla Motors Inc (NASDAQ:TSLA)’s over-hyped stock price has been criticized by many hedge funds, Lakewood is among the very few who had the guts to actually short it. Jim Chanos only hinted that he could be short Tesla Motors at the WSJ Heard Live event. There he said that Tesla is now a cult stock with a wide following and is now priced only on momentum rather than any intrinsic value.